Analysis of the 2005-06 Budget Bill

Legislative Analyst's Office
February 2005

The California Department of Forestry and Fire Protection (CDFFP), under the
policy direction of the Board of Forestry, provides fire protection services
directly or through contracts for timberlands, rangelands, and brushlands owned
privately or by state or local agencies. These areas of CDFFP responsibility
are referred to as "state responsibility areas" (SRA). In addition,
CDFFP (1) regulates timber harvesting on forestland owned privately or by the
state and (2) provides a variety of resource management services for owners of
forestlands, rangelands, and brushlands.

The budget requests about $877.4 million for the department in 2005-06,
including support and capital outlay expenditures. Of this total, 94 percent
is for fire protection, 5 percent is for resource management, and the
remainder is for State Fire Marshal activities and administration.

The total proposed budget is an increase of $6.4 million over estimated
current-year expenditures. As in the current year, the proposed budget bill for
2005-06 authorizes the Director of Finance to augment the budget for emergency
fire suppression by an amount necessary to fund these costs.

The General Fund will provide the bulk of CDFFP's funding for state operations—$524.8 million
(about 65 percent). The remaining funding will come from reimbursements
($224.8 million), federal funds ($31.3 million), and various other
state funds. Major budget proposals funded from the General Fund include: (1)
$10.8 million for fire apparatus and helicopter replacement; (2)
$9 million for year-round staffing in Southern California; and (3)
$2.9 million for conversion and replacement of radio equipment.

We recommend a deletion of $10.8 million from the General Fund
requested for fire apparatus and helicopters because the proposal lacks details
and the plan to purchase helicopters is premature. We also recommend that the
department resubmit its budget proposal for fire apparatus as part of the May
Revision. Finally, we recommend the adoption of budget bill language to
prohibit helicopter purchases in the budget year and require a study on the
department's helicopter requirements. (Reduce Item 3540-001-0001 by
$10.8 million.)

Fire Apparatus and Helicopter Budget Proposal. The budget
proposes an augmentation of $10.8 million (General Fund) for the purchase
of fire apparatus and helicopters on an ongoing basis. The budget request is in
addition to the $6.3 million currently in CDFFP's budget for ongoing
annual purchases of fire apparatus. Fire apparatus includes equipment necessary
for firefighting, such as fire engines, bull dozers, pickup trucks, and other
vehicles.

The department's budget proposal requests authority to purchase new helicopters
in order to eventually replace its existing fleet of 11 helicopters, two of
which are used as back-ups. The CDFFP augments its fleet of helicopters by
using commercial helicopter services when additional helicopters are needed.
All of CDFFP's helicopters were received over several years from the federal
government's excess equipment program and then refurbished to meet the
department's firefighting requirements. (These helicopters were given to the
state by the federal government at no cost; the state incurred costs to
refurbish the helicopters.) Beginning in 2011, these helicopters will reach the
end of their recommended useful life. The department reports that excess
federal helicopters are no longer available and therefore the department must
begin purchasing helicopters in the private marketplace at a price of
$7 million to $15 million per helicopter depending upon the type of
helicopter purchased.

We have several concerns with the department's fire apparatus and helicopter
proposal, as discussed below.

Expenditure Plan Not Well Defined. Our review of the
department's proposal finds that it does not provide information on how many
and what types of equipment it will buy in the budget and future years. This
information is necessary in order for the Legislature to evaluate how the
requested funds will be spent.

Proposed Financing Plan Is Incomplete. The CDFFP has indicated
it plans to finance some portion of this proposal. We think financing expensive
equipment such as fire apparatus could be an appropriate fiscal strategy that
reduces costs in one budget year and extends the costs over mul tiple years.
Financing, however, increases the overall purchase price of equipment because
of interest costs. However, the department's expenditure proposal does not
include sufficient details of its financing plan. Specifically, it has not
indicated how many and what type of apparatus will be financed. Without
information on the extent to which this proposal will be financed, the
Legislature cannot evaluate whether the funding requested in the budget
proposal is consistent with the department's financing plans.

Helicopter Proposal Is Premature. Our review also finds
several significant concerns with the department's proposal to acquire
helicopters. First, CDFFP has not yet completed a study to determine which type
of helicopters should be purchased or the replacement cycle of these
helicopters. Second, the proposal does not specify when or how many helicopters
will be purchased. Lastly, CDFFP has not sufficiently considered the option of
meeting its helicopter requirements by contracting out for commercial
helicopter services. Given the significant cost implications of replacing
CDFFP's helicopter fleet, we think the information discussed above is essential
in order for the Legislature to evaluate this proposal.

Recommend Department Resubmit Equipment Proposal. In summary,
our review finds that the budget proposal to purchase firefighting equipment
does not provide information necessary for the Legislature to evaluate it. We
therefore recommend the Legislature deny this proposal, reduce the department's
General Fund budget by $10.8 million, and direct CDFFP to resubmit its
equipment proposal at May Revision. We recommend the revised proposal include
funding for fire apparatus, but not helicopters, since as previously discussed,
we find helicopter purchases are premature. We further recommend that CDFFP
include the following information in its resubmitted proposal: (1) a listing of
the specific fire apparatus (with costs) to be purchased from the baseline
equipment budget and the requested augmentation, including when the apparatus
will be purchased and (2) specific details on which equipment purchases the
department plans to finance, including the financing costs.

The CDFFP Should Complete Study Before Helicopters Are Purchased.
As discussed, CDFFP's proposal to purchase new helicopters represents a
significant change in CDFFP's aviation program which currently relies on the
use of excess federal helicopters supplied to the state at no cost. The
decision on which helicopters to purchase or whether to even purchase
helicopters will have long range fiscal and operational impacts. As such, we
recommend the adoption of budget bill language directing the department to undertake
a study to more fully evaluate the options available to it in addressing its
helicopter requirements. Because the department has indicated that it does not
plan to purchase helicopters in the budget year, we recommend that the budget
bill language specify the Legislature's intent that the department's General
Fund appropriation is not available for the acquisition of helicopters. We
recommend the adoption of the following budget bill language:

Item 3540-001-0001. It is the intent of the Legislature that funds
appropriated in this item shall not be used for the acquisition of helicopters.
It is also the intent of the Legislature that the California Department of
Forestry and Fire Protection (CDFFP) complete a study, to be submitted to the
Legislature by December 1, 2005, which will provide the basis for the
Governor's 2006-07 budget proposal. The study should provide information on (1)
the use of contracted resources in CDFFP's helicopter program; (2) the type(s)
of helicopters CDFFP should purchase; and (3) a financing plan and schedule for
replacement of CDFFP's helicopter fleet.

We recommend deletion of $9 million from the General Fund
proposed for year-round staffing in Southern California because the proposal
has not been justified. (Reduce Item 3540-001-0001 by $9 million.)

Current Southern California Staffing. Currently, the
department generally provides staffing for state-funded fire stations in
Southern California only from about April 15 to December 15—the normal fire
season. The CDFFP operates 36 state-funded stations in Riverside, San
Bernardino, and San Diego Counties. The department, however, extends the length
of time it provides fire services beyond the normal fire season on an as-needed
basis. It does this when Executive Orders are issued by the Governor
(accompanied by a General Fund augmentation) or by redirecting existing
resources within its budget. For example, in the current year, CDFFP kept open
about one-half of the stations in San Bernardino, San Diego, and Riverside
Counties through mid-January by redirecting funds in its existing budget.

In some areas of Southern California, local governments request CDFFP to
continue providing services beyond the normal fire season on their behalf. In
these instances, local governments contract with CDFFP to provide the services
and reimburse the department for its costs. These contracts are referred to as
"Amador Agreements." Generally, local governments contract with CDFFP
for such services when local fire protection services are unavailable, or when
they want the existing locally provided services to be augmented. The CDFFP has
nine Amador Agreements in Riverside, San Bernardino, and San Diego Counties
which will generate about $800,000 of reimbursements to CDFFP in the current
year.

In other parts of Southern California, a couple of counties provide fire
protection services during the normal fire season on behalf of CDFFP in SRA
within county boundaries, as CDFFP does not have its own fire stations in these
areas. The CDFFP reimburses these counties, which are referred to as
"contract counties," for providing fire protection services on behalf
of CDFFP. Contract counties include Los Angeles and Orange Counties.

Year-Round Staffing Budget Proposal. The budget proposes
$9 million from the General Fund to provide year-round firefighting staff
in Southern California. Of the $9 million, about $5.7 million is for
the costs to operate 36 CDFFP stations in San Bernardino, Riverside, and San
Diego Counties year-round and $3.3 million is for Orange and Los Angeles
Counties to provide additional resources on behalf of the state for wildland
fire protection in SRA. In addition to the costs to provide additional
staffing, it is unlikely that CDFFP will continue to receive $800,000 in
reimbursements from the Amador Agreements in Riverside, San Diego and San
Bernardino Counties because, under the budget proposal, the state will be
assuming the costs to operate these stations year-round. (The department's
budget, however, does not reflect this reduction in reimbursement levels.)

Proposal Does Not Justify Year-Round Staffing. While there may
be merit to the budget request, the department was unable to provide
information to justify the need for year-round staffing. Specifically, while
CDFFP has provided data that show fires occur throughout the year in Southern
California, it has not provided an analysis which justifies the need to have
the same level of services year-round, or where additional resources are
specifically needed. For example, the proposal does not present data showing an
increase in the number of and/or intensity of wildland fires during the off
season. Further, the proposal does not provide sufficient information on how
the requested funds will be used by contract counties to provide additional
services to benefit the state. We think such information is necessary in order
for the Legislature to evaluate the merits of this proposal. Therefore, in the
absence of this information, we recommend that the Legislature deny this
proposal and reduce the department's General Fund budget by $9 million.

We find that the Legislature lacks information on the receipt and use
of unanticipated federal funds by the department. In order to improve
legislative oversight, we recommend that within the department's overall budget
appropriation item, the Legislature schedule individual amounts by program
area. We further recommend that the Legislature require the California
Department of Forestry and Fire Protection to notify the Legislature upon
receipt of unanticipated federal funds.

Federal Reimbursements for Fire Protection. When CDFFP
provides assistance for those fires or portions of fires that are considered a
federal responsibility (namely fires on federal lands), it fronts money from
the General Fund to cover these costs prior to reimbursement after the fire
from the federal agencies. The length of time it takes federal agencies to
reimburse CDFFP ranges from several months to several years. During 2003-04,
the most recent year for which actual data are available, CDFFP received over
$49 million in unanticipated federal funds (that is, federal funds
received as reimbursements for which expenditure authority had not been
provided in the annual budget act).

Legislature Lacks Oversight of Federal Reimbursements. The
budget act generally requires that the Legislature be notified before a
department can spend unanticipated federal funds which it has received.
However, since 2002-03, the budget act has exempted CDFFP from this
notification requirement. This exemption in effect allows the department to
make significant changes to its legislatively approved budget without
legislative notification. In fact the department has used the unanticipated
federal funds to "free up" General Fund monies which it then used to
augment other programs beyond their budgeted level of expenditures. This
happens because the CDFFP's annual support budget is appropriated as a lump sum
without any scheduling among program areas, such as fire protection and
resource management. This lack of scheduling enables the department to transfer
funds among program areas without legislative notification, thereby impeding
legislative oversight. For example, our review found that in 2003-04, the
department used about $39 million in unanticipated federal funds (cost
recoveries) to in effect augment programs in various areas of the department's
budget, including resource management, without legislative review. This type of
diversion of funds circumvents the Legislature's appropriation authority.

Improving Oversight of Cost Recoveries. We recommend the
Legislature take the following actions to improve legislative oversight of cost
recoveries from federal agencies.

Require Legislative
Notification for All Unanticipated Federal Funds. We recommend the
Legislature require CDFFP to notify the Legislature upon receipt of any
unanticipated federal funds, including for emergency fire suppression.
This can be done by removing language
in Item 3540-001-0890 of the 2005-06 Budget Bill that provides an
exemption from this notification requirement.

Recommend Scheduling of
Budget Bill Appropriations. We recommend that within the department's
overall budget bill appropriation item, the Legislature schedule
individual amounts by program area. (The scheduled programs would track to
the three programs displayed in the Governor's budget document. These are
the Office of the State Fire Marshal, Fire Protection, and Resource
Management.) This separate schedule, in combination with the required
legislative notification discussed previously, would ensure legislative
oversight of the receipt and use of unanticipated federal funds. Such a
change will not significantly impact the department's budgeting workload
because the department currently prepares the Governor's budget each year
using the program areas that we recommend be scheduled in the budget bill.
We also note that scheduling will not impede the department's response to emergency
fire situations given the authority the administration has to augment the
budget as required.